Cup exposes Brazil's dirty laundry

With just days to go until the kick-off of the 2014 World Cup, the world’s biggest sporting event has highlighted many of Brazil’s long-standing problems, casting doubt on whether the country really is a model for others to follow.

Just a few years ago Brazil’s success in lifting millions out of poverty won it praise from many – including the South African government, which has since tried to emulate many of the country’s social and economic policies.
But a different picture of Brazil has now emerged.

It’s not just the delays, cost overruns and accidents for which this year’s event has become renowned. The recent slowdown in growth – from a high of 7.5% in 2010 to 0.9% in 2012 – has laid bare the country’s perennial problems of crippling red tape, high costs and a political system that breeds corruption.

The 12 stadiums were handed over to Fifa at the end of May, but much of the work has had to be shelved or scaled back to meet Fifa’s deadline.
Brazil has also spent over R$8.5-billion (Brazilian reals) building the stadiums – more than three times Fifa’s 2007 estimate for the stadiums and more than the combined costs of the tournaments in Germany and South Africa.

Added to this, eight workers have died in stadium construction projects, compared with just two in 2010. In May, Minister of Mines and Energy Edison Lobão said the lights would stay on during the tournament after Brazil’s energy agency Aneel revealed in April that there were delays in the electricity projects in half of the host cities.

Water shortage
São Paulo’s government has pledged that there will be no water rationing in the state during the World Cup. The state blames a record dry summer for the water shortage, but many accuse the authorities of failure to prepare for the eventuality. The Guardian reported recently that for months, falling water levels in the Cantareira system – five interconnected reservoirs that supply 47% of São Paulo’s 20 million people – have made front-page news in the state.

Last month, Fifa secretary general Jerome Valcke gave Brazilian organisers a tongue-lashing.
“People think it’s easy to organise a World Cup but it’s real hard work, it’s a real responsibility,” he was quoted as saying.

Although many of those involved in the Mensalão, one of the country’s biggest corruption scandals (in which members of President Dilma Rousseff’s Workers Party bought votes from coalition partners) are behind bars, the Supreme Federal Court recently launched two new inquiries. The first inquiry will look into alleged kickbacks in the purchase by the São Paulo state
of metro trains between 1998 to 2008.

The second inquiry involves the acquisition by state-owned oil company Petrobras of an American
oil refinery at a highly inflated cost.

But a culture of impunity may mean that many of the perpetrators will simply get off with a smack on the wrist, just as former president Fernando Collor de Mello did when he was banned from political office for eight years after he stepped down in 1992. This was on the trail of allegations of corruption.

In April the supreme court cleared Collor’s record; he returned as a senator. Weeks later, the federal police said there was evidence linking him to a money-laundering scam.

The problem is that corruption in Brazil is based on centuries-old political patronage, made worse by the system of party funding, which the supreme court earlier this year indicated it intends to ban.
A recent report by Valor newspaper revealed that last year Rousseff’s Workers Party received R$80-million in donations – three-quarters from just 10 sources and much of it from large companies and contractors that provide funding in return for projects and contracts.

Just as serious is the custo Brasil (Brazil cost). A Big Mac meal costs R$20 (R93), compared with just R45 in South Africa. A loaf of brown bread costs about R$6 – four times more than in South Africa.

Business costs are also high. For example, a cellphone call placed after hours to someone using a different operator but residing in the same city can easily come to a whopping R$1.59 a minute (R7.46) using a TIM prepaid number.

Brazil’s high labour costs also fuel a sprawling informal sector and millions who work as “freelancers”, further eroding labour productivity.

Burdensome taxes
Added to this, it takes about 107 days to register a business, but just 19 in South Africa, according to the World Bank. Much of the high cost is down to burdensome taxes, which make up about 36% of gross domestic product, higher than some European countries and higher, in proportion, than South Africa’s tax load (26%).

It takes on average 2 600 hours for businesses in Brazil to meet tax commitments annually, and just 200 hours in South Africa, according to the World Bank.

In protest, tax attorney Vinicios Leoncio in March launched a vast book of 41 000 pages, containing nearly all the country’s tax laws.

Brazil’s social and economic policies also look questionable. The country has some of the most praised small business policies and programmes in the world, but the billions of reals the country spends to help entrepreneurs are partly undone by red tape, high costs and poor logistics.

Then there’s the development bank BNDES, which is often praised by the South African government for its ability to offer cheap finance.

It has been criticised by those, such as Brazilian economist Edmar Bacha, who say the billions the bank draws from the fiscus every year (R$319-billion since 2009) creates serious distortions in the market and sets up a parallel budget that is not passed by Congress.

Then there’s the protection of local industry, another measure the South African state is thinking of emulating, which has turned Brazil into one of the most protected economies in the world.

That’s why the country is only the 22nd-biggest exporter, with just 1.3% of the world’s exports, although its economy was ranked as the world’s seventh largest in 2013.

Larry Rohter, a former Brazil correspondent for the New York Times and the author of a book on Brazil’s advances, Brazil on the Rise, says that though a lot has changed in improved income distribution and the growth of the middle class, the political system remains flawed.

“Unfortunately, it’s the things that still need changing that are in the world spotlight at the moment, rather than the incontestable advances of the last 20 years,” says Rohter.

Brazil, it sometimes seems, has just as many problems as South Africa does.